Accessibility links

IMF Raises Forecast for Global Economic Growth but Warns of Risks

The International Monetary Fund says the world is recovering more quickly than expected from the global financial crisis.

The global economy is on track to expand by 4.6 percent this year, instead of the 4.1 percent the International Monetary Fund predicted in April.

Much of the increase comes from strong expansions in Asia and rising U.S. demand.

But, the International Monetary Fund's quarterly report, released Thursday in Hong Kong, warns of risks, primarily coming from Europe. The IMF says eurozone countries need to take action to stabilize their financial systems and reduce their sovereign debt. The IMF argues that doubts over government finances especially in Greece and other heavily in debt European countries could spread and threaten growth elsewhere.

Some economists, however, see an additional risk in China, because of concerns its high-flying property market could crash. That could be devastating to the country's banking system and hit investor confidence around the world.

Tim Condon in Singapore is the chief Asia economist for the investment bank ING. He says the IMF overlooks the risk from China's rapidly rising property prices.

"I think it is more China than the eurozone. Investors did not have high hopes for eurozone growth before the Greece crisis emerged," he said. "China is a bigger story. China grew by nearly 12 percent in the first quarter of the year and the prospect of a sharp slow down before the end of the year is quiet unnerving for stock markets."

The IMF raised its 2010 growth forecast for China to 10.5 percent from 10 percent, for Japan to 2.4 percent from 1.9 percent and for India to 9.4 percent from 8.8 percent.

It expects the United States economy to expand by 3.3 percent, up from 3.1 percent. The forecast for the eurozone countries remains flat at 1 percent.

Sub-Saharan Africa should see growth of about 5 percent, and Brazil could see growth top 7 percent this year.

The five key Southeast Asian economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam were expected to grow by an average 6.4 per cent this year and 5.5 per cent next year.

For 2011, however, the IMF expects the world will see slightly slower growth, in part because stimulus packages created in 2008 to reduce the damage from the financial crisis will start to end. As a result, it is maintaining its April forecast for global growth at 4.3 percent.